Investments and Securities Stock Selection

Investments and Securities

Stock Selection Project

Charlie Kretschmer

Professor Kim

11/30/15

Investments and Securities Project

The Stock Portfolio Project aimed to show the accuracy of a portfolio’s projected performance compared to actual performance. In order to create a basis of comparison, I bought eight stocks from the NYSE and two stocks from the NASDAQ for my “mock” portfolio on October 15. I entered the purchase price and allocation of each security into my excel model for clarity. Further, I also input the price of the four major indices—S&P 500, DJIA, NASDAQ, Russell 3000—into my excel model on October 15th. I returned to my project one month later when I sold all of my securities at their closing price on November 15th. I entered the selling price into my model of all of my securities and the major indices. Continuing, I completed my model by adding the Beta of each security and the yield of the 10-year Treasury Bill as the risk free rate. Over the course of a month, my portfolio returned 3.85%. The CAPM model projected I would earn 1.39% and Standard Deviation of my securities over a three-year time frame suggested I would earn 2.8%. I will continue by discussing why my portfolio’s return was greater than the projections due to its well-diversified nature and the drawback of projections.

I aimed to create a diversified portfolio—pursuant to industry—of Large Cap stocks. The Beta of my portfolio came out to be 0.93. Though I did not consciously seek to create a defensive portfolio, I was happy to create a risk averse portfolio in a time of heightened market volatility. Further, my portfolio’s return was driven by three stocks—Amazon, JP Morgan, and Goldman Sachs. There was a clear relationship between risk and return in my portfolio. The aforementioned stocks had the highest betas and standard deviations in my portfolio. Amazon returned 17% with a Beta of 1.49, JP Morgan returned 8.5% with a Beta of 1.17, and Goldman retuned 7% with a Beta of...